5 Things You Need to Know Before Applying for a Mortgage

Navin Chandani, CBDO, BankBazaar.com told Moneycontrol that first home buyer should know these five things before buying a house for themselves

By Navneet Dubey @imNavneetDubey 
 Originally published on MoneyControl.com

Buying a home is one of the biggest financial goals of one’s life. Even if you are taking a loan from a financial institution to buy your first home, you still have to arrange a big amount for making the down payment first. If you are a first-time buyer then it is necessary to know few important things before you invest your money towards buying a house for yourself.

First-time buyers of homes should have a strategy behind owning a home. If it is for staying purpose, then they should figure what is the cost of the home versus staying on rent. If you add the home loan to the equation, the total cost of owning a home rises. In case, they want to own a home for investment purpose only, the buyer should understand basics of the transaction like entry and exit price, taxation and tenure of investment.

Anil Rego, Right Horizon said that if you are taking a loan to buy a home, financial institutions will give you about 80% of the cost of the apartment if it is priced above Rs 75 lakh. If it’s below Rs 40-50 lakh you can get 90% of it as a home loan. You may be eligible for a good amount of home loan, but that doesn’t mean you should take all of it! As a thumb rule, take maximum 70% of home loan cost. Rest must be given by you. “The bigger the loan, the bigger the EMI and a bigger strain on your finances. Do remember, home loan repayment has a negative compounding effect on your finances due to the long tenure of loans,” said Rego.

Eligibility: Once you decide to take a loan, the first thing you need to know is how many loans you are eligible for. The factors influencing your eligibility include your credit score and history, your income, your age, and your current liabilities. Get a copy of your credit score and use an eligibility calculator to understand how many loans you can get.

Rate of interest: Once you know your eligibility, check out the interest rate. Apart from the MCLR, you need to know the spread; the reset period; the type of loan, i.e., fixed or floating; and conversion charges for switching the loan type. All these factors will ultimately affect the amount of money you pay back to the lender.

Your money outflow: Use EMI calculators to find out how much monthly EMI you would have to pay. Check if this is well within your budget and that you can actually afford to pay so much every month. Remember, if your tenor is less, then you save on the interest but your EMI would be proportionally higher. Choose the right mix of tenor and interest to get the best EMI fit.

The margin money: You will not be able to get 100% loan for your property even if it is within your eligibility limits. There are also registration charges and stamp duty that you have to pay. Calculate the margin you can get, and plan how you can pay the remaining amount.

Other terms and conditions: Check all the conditions associated with defaults, prepayment, penalties, service charges, etc. Also, clarify what different terminologies mean. For instance, you may think a “default” is applicable only in case of missed EMIs. However, banks may define default as when the borrower expires, gets a divorce (in case of joint-loans), or if they are involved in any civil litigation or criminal offence. So read and understand the fine print before taking a loan.

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